Smith + Howard, a CPA firm backed by private equity giant TPG, is preparing a fresh round of acquisitions after growing through the purchase of smaller peers, with two deals potentially closing before the end of this year, according to CEO Sean Taylor.
The Atlanta-based firm, which operates across seven U.S. states with more than 800 employees, expects roughly $175 million in revenue this year. Excluding acquisition-related growth, its organic annual revenue growth has held at 10 to 15 percent over the past decade.
Smith + Howard is now extending its buy-and-build strategy, aiming to add another 20 to 25 percent in revenue over the next 12 months through M&A. The revenue threshold for acquisition targets has been raised from between $2 million and $20 million to between $5 million and $50 million. The firm also plans to pursue multiple deals in 2027.
At the same time, Smith + Howard is exploring how artificial intelligence can handle large volumes of what Taylor described as repetitive, mechanical foundational work. The firm hopes to use AI to expand its business without hiring accountants at the same scale it has in the past.
This reflects a broader bet shared by private equity firms and AI labs: that AI can help lift margins when consolidating professional services businesses. Previously, investor Broad Sky Partners actively pushed the firm to acquire smaller practices before selling its stake to TPG in August this year.
The firm also intends to expand into more U.S. cities and take on services that were previously outsourced to external providers. Taylor said people will remain central to the business and client relationships, but where conditions are right, AI will be used to reduce manual workload and cut spending on third-party software.
Private equity firms and AI labs have long promoted AI's potential to improve returns at portfolio companies, spawning numerous partnerships. For example, OpenAI-controlled Deployment Co., launched in May this year with backing from TPG and others, sends engineers into traditional companies to implement AI transformation. Venture capital firms are also entering the space. Thrive Capital set up a dedicated investment vehicle last year to acquire accounting firms and other businesses and complete digital upgrades, while General Catalyst is also advancing a private-equity-style roll-up model.
But a debate persists in the industry: will firms pass AI-driven cost savings on to clients? If all savings are passed through, the economic benefits of AI would be offset. Brian Goffman, managing director of TPG's AI business, said the accounting industry has historically tended to retain gains for itself; even after large-scale cost-cutting measures such as offshoring, fees for services like audits have continued to rise.
"Some industries pass all the benefits to customers after cutting costs and improving efficiency. While that's good for consumers, the industry falls into a low-price race to the bottom," Goffman said. "But that doesn't seem to happen in accounting."
Taylor said private equity investors are split into two camps on AI's transformation of accounting: some are excited about it, while others fear AI will reduce billable hours and drag down revenue. Smith + Howard is bullish on AI's potential to improve the accounting industry.
The firm has rolled out Anthropic's Claude across the company, allowing employees to experiment and identify use cases. Taylor said the initial priority is applying AI to simpler work within core operations, such as audits for specific industries, while complex financial statement audits are difficult to automate. The firm is also researching new products it can sell to clients and is hiring executives to lead its AI business.
The accounting firm is not yet a client of OpenAI's private equity venture, though Goffman said cooperation could be possible in the future if that project expands its technical team and improves its service capabilities. TPG itself maintains close partnerships with AI companies including Anthropic, Microsoft and Google.
For years, private equity firms and large listed companies have been consolidating professional services businesses, pushing up industry valuations. AI now gives some investors a new reason to pay higher acquisition multiples for companies that can achieve growth and improve profitability through AI.
"We're willing to pay more than others because we know we can create incremental value with AI," Goffman said. For acquisition-driven firms like Smith + Howard, AI capabilities can be reused in every subsequent M&A integration.
Valuations for small accounting firms vary widely: targets with stable clients but lacking technology and marketing capabilities trade at just 5 to 6 times EBITDA, while mature firms that directly receive private equity investment can command 12 times EBITDA or more. Taylor said Smith + Howard targets businesses in the middle range.
Meanwhile, the return on AI investment is hard to predict, and companies are still figuring out how to forecast and control related spending. Smith + Howard tracks ROI on a monthly basis and incorporates expected costs and business growth into its five-year cash flow forecasts to judge when it is worth developing internal software itself.
"We've been tracking closely, and we're confident the returns will eventually show," Taylor said. The firm already has an internal technology team that has spent years automating business processes and once developed sales tax compliance software for internal and client use.
With TPG's resources, Smith + Howard has brought in external AI trainers working with institutions such as Anthropic. The firm commits to minimum purchase volumes in exchange for weeks of specialized training to teach employees how to use AI tools effectively.
For private equity shareholders accustomed to quick-win cost reductions like offshoring, AI presents a challenge: offshoring savings show up in financial statements quickly, while AI requires large upfront investment and may take years to deliver returns.
"In the short term, you're just spending money continuously, as anyone who has built an AI product knows... the output isn't necessarily perfect at the start," Goffman said. He added that TPG uses revenue per employee as a core metric for measuring whether AI delivers benefits, while also exploring other reasonable assessment dimensions. In accounting, for example, one could also track the number of audit projects a single employee can complete.
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